Debt/Income Ratio
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you have paid your other monthly debts.
How to figure your qualifying ratio
In general, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
For these ratios, the first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that makes up the payment.
The second number is what percent of your gross income every month that should be spent on housing costs and recurring debt together. Recurring debt includes things like vehicle payments, child support and monthly credit card payments.
Some example data:
28/36 (Conventional)
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our very useful Loan Qualifying Calculator.
Just Guidelines
Remember these ratios are just guidelines. We will be thrilled to go over pre-qualification to determine how much you can afford.
AmeriBest Mortgage can walk you through the pitfalls of getting a mortgage. Call us at 3217777277.